Drescher & Associates Aug 2017

Man, a Plan, a Canal — and a Bankruptcy? The Panama Canal and the Biggest Real Estate Bankruptcy in History

the canal for years. But right from the start, the work went awry. The extravagant operation was plagued by corruption and crime, right down to workers stealing and selling off the office equipment. But the biggest problem was tropical disease. Malaria and yellow fever, whose methods of transmission were unknown at the time, killed thousands upon thousands of laborers and engineers alike. Thinking the diseases were being spread by ants, the legs of hospital beds were placed into cans of standing water, which only encouraged the mosquito outbreak. In 1885, it became clear to most people involved in the project that a sea-level canal was wildly impractical, owing to the fact that there were still 157 million cubic yards of excavation to complete, not to mention the task of blocking and damming the Chagres River. The rising death toll, the lack of adequate engineering expertise, and mismanaged finances led to an extreme deficit in funds. After eight years and about $234.9 million spent, the canal, now converted to a lock canal rather than a sea-level model, was about two-fifths of the way done. On May 15, 1889, the company (la Société Civile Internationale du Canal Interocéanique de Darien) declared bankruptcy. This led to the creation of the New Panama Canal Company, which never gained traction and was later sold to the U.S. for $40 million. The French squandered hundreds of millions of dollars, and the

contractors got less than 10 cents on the dollar for the money that was owed to them. The most ironic part of the Panama Canal story is the ending. For years, the canal’s construction had been front-page news, as the world followed, with bated breath, the development of one of the largest engineering projects in human history. But when the SS Ancon made the first official transit of the canal on August 15, 1914, the news was buried beneath the outbreak of World War I. The initial French effort was, obviously, doomed from the beginning, but we cannot understate the importance of the bankruptcy for the canal’s eventual completion by the United States. Declaring bankruptcy is often viewed as an admission of failure — a universally negative process. When we look at the story of the Panama Canal, it’s clear that bankruptcy is truly a tool for renewal and forward progress in the midst of adversity. The Panama Canal may be a modern marvel, but it’s also an enduring symbol of redemption. The French efforts, though plagued by bankruptcy and scandal, laid the groundwork for one of the most complex and valuable projects of the modern age. – Ron Drescher

Not many people know this, but the story of the Panama Canal, one of the crowning feats of human engineering and ingenuity, is also the story of the biggest real estate bankruptcy of all time. With the 103rd anniversary of the canal’s completion coming up on August 15, it’s a tale well-worth revisiting. After Spanish explorer Vasco Núñez de Balboa crossed the narrow isthmus of Panama in 1513, Central American colonists began dreaming of a passage between the Atlantic and Pacific Oceans. But it wasn’t until 1869, after French engineer Ferdinand de Lesseps and his team successfully completed the Suez Canal, that lawmakers and citizens alike were persuaded to invest nearly $400 million into the French-led project, beginning its construction in earnest. The plan was to construct a sea-level canal across the isthmus. After the Suez, French officials believed that the project, apparently similar, could be carried out without a hiccup. The project was enormous, with entire communities of laborers (numbering over 40,000) and engineers living and working on

When we look at the story of the Panama Canal, it’s clear that bankruptcy is truly a tool for renewal and forward progress in the midst of adversity.